Apple Inc. (AAPL) has been a darling of both Main Street and Wall Street for quite some time. When a stock or anything for that matter is the 'apple of your eye' so to speak you often overlook its obvious flaws until they become so glaring that you cannot deny them. In the following sections I will lay out the four major reasons for Apple's recent decline.
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Apple Missed Earnings The Last Two Quarters
This is the most likely culprit for the recent drop yet gets the least coverage. I rarely hear anyone bring the fact Apple missed the last two quarters in a row. Apple reported third quarter 2012 earnings of $9.32 per share on 7/24/12. This missed the $10.37 consensus of the 44 analysts covering the company. The stock took a short dip and then began to climb again on news of new products on the horizon but started to slip about a month prior to earnings being announced as rumors began the company may miss earnings again. Then, on 10/25/12, Apple reported fourth quarter 2012 earnings of $8.67 per share. This missed the $8.75 consensus of the 47 analysts covering the company. After this miss, Apple share proceeded to fall further as news of the fiscal cliff coupled with news of supply shortages of the new iPhone5 began to surface. This is the primary reason for the major drop in shares.
Death Cross Imminent
Many investors pay attention to the technical characteristics of a stock. Major institutional investors often buy or sell a stock based solely on this analysis. Apple's current technical state is poor. The stock has broken through all major resistance levels on its way to fulfilling the dreaded death cross. This is where the 50-day sma passes below the 200-day sma. This is considered extremely bearish by technical investors and is widely regarded as a signal to sell. I posit many investors see the death cross looming and are taking profits prior to the event. This technical selling is exacerbating the weakness in the stock.
Margin Requirements Raised
According to Streetinsider.com, shares of Apple have taken the biggest one day hit in months Wednesday on word clearing firms are raising the margin requirement for clients. COR Clearing raised its margin requirement specifically on Apple from 30% to 60% Wednesday, citing a "high concentration." Shares of Apple are down $25, or 4.37%, to $550.87 at the time of this writing.
I see this as a transitory event and actually helpful to the stock in the long run. This will help to lower speculation in the stock. By raising the margin requirements in the stock, investors will have to readjust their positions downward to meet the new requirements. This should take some of the speculative froth out of the stock. The 4% hit the stock has taken today is a directly correlated to this event. Once everyone has adjusted their positions, the stock should have a stronger base of long term investors with more skin in the game.
Year End Tax Loss Selling
Many investors in Apple have significant capital gains both long and short term. As the rhetoric regarding the resolution of the fiscal cliff becomes more and more negative with both sides seemingly will to take the plunge, investors are taking no chances and booking profits now rather than later. This would appear to be a prudent move in light of the fact Apple has not announced a special dividend disbursement as many other companies with significant cash hoards have done. This may be due to the fact they feel the money would be better utilized for acquisition or to provide funding for research and development. Even so, they still could declare one prior to year end.
The Bottom Line
A confluence of conditions has brought Apple's stock down over the last few months. Three are based on factors that nothing to do with the company's products and future prospects. One, the fact they have missed the last two quarters, is based on what has happened in the past not the future.
Even though Apple is predicted to lose market share to the competition in 2012, I posit they will still increase sales year over year based on the fact the market as a whole is growing enough to compensate for the stiffer competition. Moreover, Apple customers are known for the extreme loyalty and have most likely made significant investments in Apple's entire ecosystem. I don't see many of their core customers jumping ship based on price.
Furthermore, Apple is in the process of executing two major product refresh cycles to include the iPhone5 and the newly introduced iPad Mini which was specifically built to take back market share from the smaller tablet makers. I see this as a buying opportunity. Apple has not lost its mojo as many would have you think. Look for the stock to test the recent lows of $500 by the end of the year for an opportunity to start a position.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.